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2012 TRIAL HIGHER SCHOOL C E RT I F I CAT E EXAMINA T I O N Made by Powlmao/Loapowm (Josh U) Economics Total marks – 100 Section I General Instructions • Reading time – 5 minutes • Working time – 3 hours • Write using black or blue pen Black pen is preferred • Board-approved calculators may be used • Write your Centre Number and Student Number at the top of pages 9, 11, 13 and 15 Pages 2–8 20 marks • Attempt Questions 1–20 • Allow about 35 minutes for this section Section II Pages 9–16 40 marks • Attempt Questions 21–24 • Allow about 1 hour and 15 minutes for this section Section III Pages 17–18 20 marks • Attempt either Question 25 or Question 26 • Allow about 35 minutes for this section Section IV Page 19 20 marks • Attempt either Question 27 or Question 28 • Allow about 35 minutes for this section Section I 20 marks Attempt Questions 1–20 Allow about 35 minutes for this section Use the multiple-choice answer sheet for Questions 1–20. 1 Which of the following is an example of a contractionary macroeconomic policy? (A) RBA selling second hand Commonwealth Government securities (B) RBA buying second hand Commonwealth Government Securities (C) RBA issuing new Commonwealth Government Securities to finance an increase in the budget deficit (D) RBA issuing new Commonwealth Government Securities to retire Government debt 2 Which of the following economies is Australia’s largest export market? (A) China (B) New Zealand (C) United States of America (D) European Union 3 The table shows selected data for a hypothetical economy Year 1 2 3 Export Price Index 110 110 80 Import Price Index 90 110 120 Which of the following Statements is true? (A) In Year 3 export prices rose faster than import prices (B) In Year 2 the balance on goods and services worsened (C) Between Year 1 and Year 3 the terms of trade improved (D) In Year 3 import prices rose faster than export prices Paper made by Powlmao/Loapowm (Josh U) –2– 4 The table shows selected data for an economies Balance of Payments Balance of Payments $ billion ($bn) Exports 100 Imports 150 Net Services 80 Net Income -90 Net Current Transfers -15 Capital Transfers 50 Reserve Assets 5 According to the information above, which of the following statements is correct about an economy with a floating exchange rate? 5 (A) There is a surplus of $30 billion on the balance of Goods and Services (B) There is a deficit of $30 billion on the Balance of Goods and Services (C) There is a surplus of 75 billion on the financial account (D) There is a deficit of $55 billion on the financial account The graph shows the foreign exchange rate for the Australia Dollar. AS1 $A/$US AS0 90c 80c AD 0 Quantity $A Which of the following would cause the change in the exchange rate as shown above? (A) A decrease in portfolio investment inflows (B) A decrease in import volumes (C) A decrease in tourism into Australia (D) A decrease in global protection levels –3– 6 Which statement best describes the operation of fiscal policy in comparison to the operations of monetary policy? (A) Monetary policy has a longer transmission tie lag and is more effective in stimulating the economy during a recession (B) Fiscal policy influences investment whereas monetary policy influences consumption (C) Fiscal policy has a more immediate impact on the economy and can influence growth between economic sectors (D) Monetary policy has a shorter transmission time lag and is more effective in slowing the economy during a boom 7 The table shows data for a nation’s terms of trade. Year Nominal GDP $bn CPI 1 250 100 2 345 120 What is the value of real GDP in year 2 (A) $208.3bn (B) $276.0bn (C) $287.5bn (D) $300.0bn 8 Which of the following best describes the characteristics of a developing economy (A) Low absolute poverty, poor governance and reliance on foreign aid (B) Low income per capita, low levels of human development, small share of foreign direct investment. (C) High absolute poverty, low levels of foreign indebtedness, strong social and political institutions. (D) Reliance on service exports, low levels of government debt, high levels of economic growth 9 What is the name of the body that is responsible for determining wages in Australia? (A) The Australian Industrial Relations Commission –4– (B) The Australian Fair Pay Commission (C) Fair Work Australia (D) The Workplace Ombudsman 10 The graph shows the demand for and supply of Australian dollars. S1 $A in terms of $US S0 0.70 0.60 D 0 Q1 Q0 Quantity of $A Which of the following is the most likely reason for the shift in the supply curve from S0 to S1? (A) An increase in foreign imports into Australia (B) An increase in foreign financial investment in Australia (C) A reduction in the net income deficit on the current account (D) A decline in the international competitiveness of Australian firms 11 How would the Reserve Bank of Australia increase the cash rate in the short term money market? (A) Buy Government securities and increase liquidity (B) Sell Government securities and increase liquidity (C) Buy Government securities and decrease liquidity (D) Sell Government securities and decrease liquidity 12 Which of the following is a use of a budget surplus by the Government (A) Funding tax cuts (B) Increasing spending on infrastructure projects –5– (C) Financing an issue of government bonds (D) The repayment of government debt 13 Which of the following best explains under-provision of public goods by the market system? (A) Only the government supplies public goods (B) Public goods are more expensive, so only high income earners can afford to pay for them (C) Firms supplying public goods cannot exclude those who are unwilling to pay for them (D) Consumers do not demand public goods, so few are supplied by the market. 14 Which of the following transactions would be recorded as a debit on the Current account of the Balance of Payments? (A) The purchase of shares in a US company by an Australian Resident (B) Borrowing from a Japanese Bank (C) Interest paid to Australian lenders (D) Dividends paid to foreign investors 15 Which of the following is an example of a bilateral trade agreement to which Australia is a part of? (A) Closer Economic Relations Trade Agreement (B) Australia China Free Trade Agreement (C) ASEAN Australia New Zealand Free Trade Agreement (E) 16 ASEAN Economic Outlook Which is the most appropriate macroeconomic policy mix if the Australian economy is experiencing inflationary pressures? (A) A decrease in taxation and the sale of government securities by the Reserve Bank –6– (B) A decrease in government spending and the sale of government securities by the Reserve Bank (C) An increase in taxation and the purchase of government securities by the Reserve Bank (D) An increase in government spending and the purchase of government securities by the Reserve Bank 17 Which of the following would least likely result from a centralize system of wage determination (A) A more equal distribution of income (B) Lower levels of inflation (C) Rising levels of productivity (D) Lower wage growth 18 Which of the following types of inflation is least effectively addressed using monetary policy (A) Demand pull inflation (B) Cost push inflation (C) Inflationary expectations (D) Imported inflation 19 Which of the following is a characteristic of an automatic stabilizer? (A) They counteract fluctuations in economic activity (B) They do not operate when an economy falls into recession (C) They are also known as the structural component of the budget (D) They reinforce fluctuations in economic activity 20 An industry that generates pollution incurs both private and social costs. What will happen to the quantity and equilibrium price when BOTH private and social costs are taken into account? (A) Both output and price will fall. (B) Both output and price will rise. (C) Output will fall and the price will rise. (D) Output will rise and the price will fall. –7– Economics Section II 40 marks Attempt Questions 21–24 Allow about 1 hour and 15 minutes for this section Answer the questions in the spaces provided. These spaces provide guidance for the expected length of response. Question 21 (10 marks) (a) Outline two ways income inequality is measured 2 ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... (b) Distinguish between income and wealth ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... Question 21 continues on page 10 2 (c) Explain one factor contributing to income inequality in Australia 2 ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... (c) Discuss Government policies that can be ued to reduce wealth inequality in Australia ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... 4 Economics Section II (continued) Question 22 (10 marks) (a) The table shows current account data for an economy. (i) Year 1 Unemployment 1 1063000 2 1128000 3 1186000 Define the Natural rate of unemployment (NAIRU) 2 ................................................................................................................... ................................................................................................................... ................................................................................................................... ................................................................................................................... (ii) Show the rate of change in unemployment from year 2 to year 3 ................................................................................................................... ................................................................................................................... ................................................................................................................... ................................................................................................................... ..................................................................................................... . . . . . . . . . . . . . . 2. Question 22 (continued) (b) Explain ONE possible cause and ONE effect of unemployment 4 ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... Examine the effectiveness of ONE economic policy used to reduce the rate of unemployment ............................................................................................................................... (C) ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... End of Question 22 5 Economics Section II (continued) Question 23 (10 marks) (a) The table shows an exchange rate for an economy. $1.10 $1.00 Calculate the movement shown above 1 ............................................................................................................................... ............................................................................................................................... (b) Outline two factors that could have caused the movement in the diagram above ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... 3 Question 23 (continued) (b) Describe the impact of an improvement in Australia’s export competitiveness on Australia’s exchange rate 2 ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... (d) Explain the relationship between financial flows and the exchange rate ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... End of Question 23 4 Economics Section II (continued) Question 24 (10 marks) (a) Define Monetary Policy. 2 ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... (b) Describe one recent trend in monetary policy and its effect in the economy ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... Question 24 continues on page 16 2 Question 24 (continued) (c) Briefly explain how monetary policy can influence imported inflation 3 ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... (d) Explain how the Reserve Bank of Australia can use domestic market operations to lower inflation in a economy ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... ............................................................................................................................... 4 Economics Section III 20 marks Attempt either Question 25 or Question 26 Allow about 35 minutes for this section Answer the question in a writing booklet. Extra writing booklets are available. In your answer you will be assessed on how well you: ■ demonstrate knowledge and understanding relevant to the question ■ use the information provided ■ apply relevant economic terms, concepts, relationships and theory ■ present a sustained, logical and cohesive response Question 25 (20 marks) Explain the use of macroeconomic and microeconomic policies used by the Australian Government to achieve the objectives of full employment and external stability. In your response use the information below OR In your answer you will be assessed on how well you: ■ demonstrate knowledge and understanding relevant to the question ■ use the information provided ■ apply relevant economic terms, concepts, relationships and theory ■ present a sustained, logical and cohesive response Question 26 (20 marks) Explain the impacts of changes in the global economy on Australia’s financial and trade flows. In your response refer to the below information. – 17 – Section IV 20 marks Attempt either Question 27 or Question 28 Allow about 35 minutes for this section Answer the question in a SEPARATE writing booklet. Extra writing booklets are available. In your answer you will be assessed on how well you: ■ demonstrate knowledge and understanding relevant to the question ■ apply relevant economic information, terms, concepts, relationships and theory ■ present a sustained, logical and cohesive response Question 27 (20 marks) Examine the limitations of strategies to promote economic growth and development in an economy other than Australia. OR Question 28 (20 marks) Discus the economic implications of Australia’s continuing current account deficit. End of paper – 18 – BLANK PAGE – 20 – © Board of Studies NSW 2011